IHS Global Insight Perspective | |
Significance | A total of 12 pharma entities have been implicated by the Ontario government's legal recourse. This includes seven generic firms, four wholesalers and one pharmacy chain. |
Implications | The allegations have triggered other provinces, such as Quebec and Saskatchewan, to scrutinise drug rebates paid to pharmacies. New transparency legislation will be evoked to gain wider information and monitor the practices. |
Outlook | The practice of the professional allowance system is potentially under threat as a result of these allegations, and legislation restricting this practice is expected in the short term across the provinces. Generic drug makers will see an increase in litigation around this issue in the short term. |
The results of an audit by the Ontario government into drug-purchasing schemes have sparked a wave of regulatory scrutiny over the practice of drug rebates among various pharmaceutical stakeholders in Canada. The audit, carried out by the Ontario government's Ministry of Health and Long-Term Care's Public Drug Program division, looked at the payments involving drug makers, wholesalers, and pharmacies, revealing discrepancies in professional allowances paid to pharmacies and wholesalers. The key enforcement decisions and results of the study are:
- The results of the audit indicate that drug purchasing schemes include pharmacies exceeding procurement of drugs beyond their current requirements, collecting allowances, and then returning the excess back to the wholesaler, who re-sells the product, triggering another allowance payment.
- Significant questions over the safety aspects of the drugs in this scheme have been raised, suggesting that the original source would be difficult to track.
- The audit also examined the professional allowance system, paid by drug makers to wholesalers and pharmacies. The Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) allow for allowances to be paid for up to 20% of generic drug product sales (per pharmacy). But the allowances are restricted in usage, wherein the pharmacies have to demonstrate that the monies were used on patient care and benefitted customers. In the private market, there is no cap on professional allowance paid or received, but the restrictive-usage legislation still applies.
- The Ontario government issued penalty orders against Taro Pharmaceuticals, Cobalt Pharmaceuticals, Genpharm, Novopharm, Ratiopharm, Pharmascience, and Sandoz Canada. Wholesalers included: Amerisource Bergen Corp Canada, Kohl and Frisch Ltd, A.O.C. Company Ltd, and Pharmastop, along with pharmacy chain, Kohler's Drug Store.
- The total fine imposed was C$33.8 million (US$28.5million) and legal proceedings have been initiated against the 12 firms alleging provision of false and/or misleading information, or obstructing inspection (against a generic drug maker, one wholesaler and the pharmacy chain).
With the Ontario government pursuing legal recourse, other provinces have increased scrutiny of the payment system. The Saskatchewan government has indicated that C$35 million of pharmacy rebates could have been paid out without specifying a time period. According to CBC News, the province's prescription drug plan registers an annual expenditure of US$313 million, with 350 pharmacies operating.
Outlook and Implications
The professional allowance system in Canada will increasingly find itself under the spotlight as scrutiny from regulatory officials across the provinces increases. With the Ontario government to file charges in the country's courts, drug makers, particularly generic firms, are likely to be in the midst of the storm. It is likely that other provinces may also take the legal route, increasing legal expenses for generic firms, wholesalers, and pharmacies.
At the heart of this issue, is the practice of monies paid to pharmacies and wholesalers for drugs. The fact that the system now includes potential multiple payouts for the same drugs has irked regulators, who have budgeted hundreds of millions of dollars annually for drugs. In fact, drug makers will increasingly find the issue of drug rebates being discussed while negotiating new contracts with provincial governments. This is a clear shift from earlier practice.
While the Canadian Generic Pharmaceutical Association (CGPA) in its statement has indicated that it will participate in any review by the Ontario government on the professional allowance practice, there is some disquiet among industry stakeholders. Pharmacists have pointed out that the allowance system essentially allows the business to be viable and profitable. Dispensing fees of C$8.43 and mark-ups, according to pharmacists, do not adequately cover the costs of running pharmacies (source: CBC News). The provincial governments are expected to consider restrictive legislation to monitor the practice of allowance payments. In the short term, penalties and fines will increase for pharmacies, wholesalers, and generic drug makers, as probes are launched by other provinces as well.